Posted in GreenBiz
May 23, 2022

Can you go climate smart and gender smart in the public markets?


So far in this column, I’ve written about how climate and gender are coming together in private market investment vehicles, and why investing that way isn’t just the right thing to do, it’s the smart thing to do.

But what about the public markets? We know that more capital is deployed through investing in listed companies than anywhere else by institutional and retail investors alike. And it’s well recognized that corporate behavior is both a key driver on climate and a key driver on gender equity.

So, if we want to use finance as a tool to shift the needle on climate and gender, we need to be working in the public markets as well.

A handful of leading-edge asset managers have created vehicles that are tackling both simultaneously.

The conventional wisdom in public markets has been to approach climate and gender as separate themes, whether for reasons related to perceived investor demand, fears of narrowing the universe of investable companies if you apply both lenses simultaneously or challenges with analyzing or integrating the data.

But although most public markets climate and gender vehicles at present are approaching the issues separately, a handful of leading-edge asset managers have created vehicles that are tackling both simultaneously.

I reached out to some public equities asset managers in the GenderSmart community to find out how they are approaching climate and gender in their work, what they are hearing from investors and what they think is needed to better integrate climate and gender in public markets vehicles.

It’s happening, and it’s here

The first and most important thing you should know is that although there are some challenges to combining climate and gender in public markets vehicles, it is possible, and some asset managers are already doing it.

I’ve written before in this column about Adasina Social Capital’s JSTC ETF, which screens investments across four axes: climate; gender; racial equity; and economic justice. But there is also Trillium, which has several actively managed vehicles available that are not “labeled” as gender, diversity or climate but which screen and select with those variables and also engage actively in the boardroom. Nia Global Solutions, another active manager, also manages a portfolio which looks at climate, gender and diversity.

All made a point of saying we need to push for better disclosure from the companies themselves on both climate and gender.

One thing that is much harder in publicly listed companies is to analyze where the gender and climate lenses intersect, rather than evaluating each lens independently. In a smaller or privately held company, you can analyze where a climate-smart business process, product, service or supply chain can be enhanced by paying attention to gender dynamics. In public companies, this is not yet happening consistently nor is the reporting there.

Untapped demand

Many asset managers we spoke to said that gender and climate were sought after themes for their clients — in some cases, the most requested of all their investment themes. But they also reported that they were rarely requested together, whether because investors didn’t understand the links between gender and climate, or because it hadn’t occurred to investors that combining the two themes was something they could ask for.

Given the demand for climate and gender investment products, there may be an untapped market opportunity for public market vehicles that intelligently and explicitly combine the two. If it’s something you’d like to see as an investor, let your asset managers know.

The data deficit

One of the biggest barriers to combining climate and gender themes in the public markets is the work involved in creating good, integrated data. In index funds especially, it requires someone to do the analysis to take a climate index and a gender index, integrate them, determine where the holes in the portfolio are and then rebalance them again. There is a hunger among investors for data that would make this work easier.

But easily accessible products are available to investors today. Take UBS’s gender ETF, which takes gender data from Equileap and explicitly excludes companies involved in coal extraction and power generation, as well as companies that do not adhere to the UN Global Compact.

There is also an opportunity for portfolio managers to go deeper with their analysis, going beyond the usual metrics such as the number of women in leadership or employment to look at the real social and environmental impact of a company’s products and services, as well as its impact through its supply chains. If you’re a sustainability professional, are you sharing with the market your gender and racial equity data as much as you’re sharing your climate data?

Don’t just divest — engage

The market is split between those who approach climate investing in the public markets by divesting from companies that are significant producers or users of fossil fuels, and those that continue to invest and engage. One can approach gender in a similar manner: Invest only in the leaders, divest from the laggards or invest and engage.

Matt Patsky, CEO of Trillium Investments, talked about the choices investors make on whether to divest or invest. In Trillium’s case, they divest from fossil fuels and continue to engage with companies on better climate practices. On gender, they screen for better companies, and they actively engage in the boardroom. They’ve engaged around greenhouse gas emissions targets, anti-discrimination on sexual orientation and gender identity, gender and racial equity in hiring and promotions, bringing gender and racial diversity to the board of directors, and more.

Investors can leverage this active ownership power by managing their own portfolios instead of relying on ETFs or broad market index funds, or by investing in actively managed funds rather than passively managed index funds. “Every index fund could be an active owner,” said Patsky. “Most index fund managers choose to also be passive owners and don’t make any effort to push company management teams for improved social and environmental outcomes.”

What’s not an option is to not engage. If you care about climate and gender, and you’re invested in companies that are performing badly on one or both, it’s your obligation and your opportunity to call them to do better.

Time for action

In short, there are a variety of ways you can bring together climate and gender in public markets investments, from investing in existing vehicles that already combine the two lenses; to letting your asset manager know that there is market demand for integrated climate and gender vehicles; to making transparent your own company’s climate, gender and racial equity data; to using your leverage as an investor to push the companies you invest in to do better.

There is a lot of room in the market for more products that combine these lenses. I’d like to see a water equity portfolio with a gender lens, a clean energy portfolio with a gender lens, a circular economy portfolio with a gender lens.

Every climate-smart theme in public markets should be integrating gender and diversity — both because it’s smart and because it’s time.

May 23, 2022 at 03:10PM

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